Investing

There are a broad range of assets that a SMSF can invest in. The trustees have full control and make investment decisions - including choosing those individual investments and executing the transaction.

Some of the assets SMSFs invest in includes:

• Cash (held in bank/ savings account)
• Term deposits
• Australian shares and unit trusts listed on the ASX
• International shares listed on an overseas exchange
• Managed funds
• Residential real property
• Commercial/ business real property
• Real property with borrowing through a limited recourse borrowing arrangement
• Certain derivatives
• Collectables, subject to additional rules
• Other assets, such as cryptocurrencies

Superannuation laws places restrictions on the SMSF. They include the sole purpose test, commercial terms (arm's length basis), related party transactions. There are also speific investment restrictions.

The sole purpose test requires SMSF to be maintained for the sole purpose of providing retirement benefits to members, or to their dependants if a member dies before retirement. The test is a strict test requiring exclusivity of purpose. Any trustee who maintains an SMSF for other purposes contravenes the sole purpose test.

When choosing an investment, the trustee must ensure that the character and purpose of that investments meets the sole purpose test. For example, the sole purpose test is breached if a present‑day benefit is provided.

All transactions of the SMSF must be made on commercial terms (arm's length basis). The purchase and sale price of fund assets should always reflect true market value, and the income from fund assets should always reflect a true market rate of return.

SMSF cannot acquire assets from, lend money to, members of the SMSF or other related party. The SMSF cannot borrow, subject to some limited exception, such as the limited recourse borowing to apply to the purchase of an asset, e.g. real property.

More details on specific key rules.

The investments of the SMSF must be held seperately from the trustees' own assets. The investments should clearly evidence the SMSF's ownership.

The investments should be held in the name of the SMSF and be distinguishable from trustees own assets -

«trustee name» as trustee for «SMSF name»
For example, John Citizen and Jane Citizen as trustee for Citizen Super Fund

The SMSF's investments should not be held in the name of a trustee or a member as an individual in their own capacity.

If you are thinking of making an investment in a non-traditional asset or unusual transaction, contact us and we can help you to determined whether it will meet the sole purpose test, and other superannution laws.